Revenue incapable on incapacity benefit

Published on 11 October 2004

Incapacity benefit (IB) can be a complex state benefit as far as taxation is concerned. It is essential that the tax status is understood or individuals may mistakenly declare it for tax purposes and are taxed when they should not be. Clear guidance from the Revenue is obviously important.

Lower rate short-term IB, payable for up to 28 weeks, is tax free, as is a child dependant addition. There is one other situation where IB can be tax free and that is where it has been received since before April 1995 and was part of the transitional arrangements for transfer from the former invalidity benefit.

LITRG has seen examples of recipients of IB in the tax-free categories being taxed in error on their IB, so we decided to review the Revenue’s help on the subject.

The Revenue did produce specific guidance in the form of a leaflet (IR144) until it was withdrawn in March 2004. The rationale for withdrawal was the existence of a DWP leaflet (IB1) to which the reader of the Revenue website is now referred provided you go to the leaflets section (and if you manage to find the Obsolete Leaflets section for the referral). If you search on IB you can still confusingly find rogue copies of the withdrawn leaflet.

If you want an IB1 you can ring the Revenue leaflets orderline but you will be told they cannot send you one as it is a DWP offering and you should go to your nearest tax office as they might have one.

Assuming that somehow you manage to acquire an IB1 (April 2004) you will find the tax position explained by the DWP, but not very well and incompletely. If you want clarification you are asked to contact any tax office or the specialist IB district of Leicester 4 with a phone number given.

Ringing that phone number discloses that it is unobtainable. After a little more research the intrepid will find that Leicester 4 has been replaced by a consolidated Enquiry Centre. When asked whether someone receiving IB since before 1995 should declare this, the Enquiry Centre confirmed, wrongly, that it was clearly taxable.

There is another leaflet available for IB recipients held on the web and that is the P3 (IB)(2004). This is confusingly called an Invalidity Benefit leaflet by the search engine. This 7 page leaflet does not mention the tax free status of any IB payments. It spends much time considering the effects of the married couples allowance for pensioners, which is surprising as you cannot get long-term IB once you reach retirement age. There are also no references made to the Revenue’s help for people with special needs.

There are over 2.4 million people in the United Kingdom in receipt of IB and it would be good if the Revenue could do a little better by these customers.


Contact Name: John Andrews (Tel: 0844 579 6700, Fax: 0844 579 6701)